UK Pay Growth Tops Expectations

(RTTNews) - Average earnings in the U.K. grew better than expected in March and the jobless rate rose slightly, while the fall in employment was less than expected and vacancies continued to decline, giving more evidence of a cooling labor market to Bank of England that is preparing to lower interest rates soon. Wages excluding bonuses grew 6.0 percent year-on-year in the January to March period, preliminary data from the Office for National Statistics showed Tuesday.

Economists had forecast a gain of 5.9 percent in regular pay that serves as the preferred gauge for the Bank of England to measure wage inflation. Pay including bonuses grew 5.7 percent annually in the three months to March. Economists had expected an increase of 5.3 percent. ONS said both the manufacturing and the finance and business services sector logged the biggest annual regular growth rate at 6.8 percent.

Regular pay growth in the private sector was 5.9 percent, which was the biggest gain since the April to June period of 2022, when wages grew 5.4 percent. Public sector pay rose 6.3 percent in the March quarter.

The unemployment rate for those of age 16 and older rose to 4.3 percent in the three months to March, which was in line with expectations.

The claimant count increased by 8,900 on the month to total 1.579 million in April, which was much less than the 13,900 economists had forecast.

Employment decreased by 178,000 persons from the previous period, which was much smaller decrease than the 215,000 slump economists were looking for.

The number of vacancies decreased by 26,000 sequentially in February to April to 898,000 jobs. Vacancy numbers decreased on the quarter for the 22nd consecutive period, the ONS said.

Thirteen of the 18 industry sectors reported a fall in job openings.

"Whether it's falling vacancies or slower private-sector wage growth, there's plenty of evidence that the UK jobs market is cooling," ING economist James Smith said.

The Bank of England is set to shift focus from wage inflation to services inflation in the coming weeks to determine whether it should cut interest rates in June or beyond, the economist said.

"Services CPI will fall back in year-on-year terms, but we think the risk is that this fall will be slightly less dramatic than the BoE expects," Smith said.

"If we're right, then that slightly favors August over June as the start date for rate cuts. But in all honesty, we think it's looking pretty 50-50 right now."

"Today's data chimes with the picture we're hearing from businesses," Jane Gratton, deputy director, public policy at the British Chambers of Commerce said.

The latest BCC survey had showed an easing in recruitment conditions in the first quarter with fewer firms facing difficulties hiring.

"But significant challenges and pressures remain. Competition for skills, increased wage costs and high interest rates continue to ramp up pressure on businesses and act as a drag on investment and growth," Gratton added.